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Testimony:
Before the Subcommittee on Defense, Committee on Appropriations, House
of Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EDT:
Thursday, May 10, 2007:
Defense Acquisitions:
Improved Management and Oversight Needed to Better Control DOD's
Acquisition of Services:
Statement of John P. Hutton, Director:
Acquisition and Sourcing Management:
GAO-07-832T:
GAO Highlights:
Highlights of GAO-07-832T, a testimony before the Subcommittee on
Defense, Committee on Appropriations, House of Representatives
Why GAO Did This Study:
The Department of Defense (DOD) is relying more and more on contractors
to provide billions of dollars in services. Congress has pushed DOD to
employ sound business practices when using the private sector for
services.
This testimony discusses DOD’s
(1) increasing reliance on contractors; (2) efforts to follow sound
business practices when acquiring services; and (3) actions to improve
its management and oversight of services.
This testimony is based on GAO’s work spanning several years as well as
recent reports issued by the Inspectors General.
What GAO Found:
Over the past decade, DOD has increasingly relied on contractors to
provide a range of mission-critical services from operating information
technology systems to providing logistical support on the battlefield.
The growth in spending on services clearly illustrates this point.
DOD’s obligations on service contracts, expressed in constant fiscal
year 2006 dollars, rose from $85.1 billion in fiscal year 1996 to more
than $151 billion in fiscal year 2006, a 78 percent increase. While
obligations increased, the size of the civilian workforce decreased.
Moreover, DOD carried out this downsizing without ensuring that it had
the requisite skills and competencies needed to manage and oversee
service acquisitions. Overall, our work found that to a large degree,
this growth in spending on services simply happened and was not a
managed outcome.
The lack of sound business practices—poorly defined requirements,
inadequate competition, the lack of comprehensive guidance and
visibility on contractors supporting deployed forces, inadequate
monitoring of contractor performance, and inappropriate use of other
agencies’ contracts and contracting services—expose DOD to unnecessary
risk, waste resources, and complicate efforts to hold contractors
accountable for poor service acquisition outcomes. For example, DOD
awarded contracts for security guard services supporting 57 domestic
bases, 46 of which were done on an authorized, sole-source basis. The
sole-source contracts were awarded by DOD despite recognizing it was
paying about 25 percent more than previously paid for contracts awarded
competitively. Further, the lack of sufficient surveillance on service
contracts placed DOD at risk of being unable to identify and correct
poor contractor performance in a timely manner and potentially paying
too much for the services it receives. Overall, DOD’s management
structure and processes overseeing service acquisitions lacked key
elements at the strategic and transactional levels.
DOD has taken some steps to improve its management of services
acquisition, including developing a competency model for its
contracting workforce; issuing policies and guidance to improve its
management of contractors supporting deployed forces and its use of
interagency contracts; and developing an integrated assessment of how
best to acquire services. DOD leadership will be critical for
translating this assessment into policy and, most importantly,
effective frontline practices. At this point, DOD does not know how
well its services acquisition processes are working, which part of its
mission can best be met through buying services, and whether it is
obtaining the services it needs while protecting DOD’s and the
taxpayer’s interests.
What GAO Recommends:
While GAO is making no recommendations in this testimony, GAO has made
numerous recommendations through the years to help improve DOD’s
contract management. DOD has generally concurred with these
recommendations and is taking, or plans to take, action to improve the
acquisition of services, but much remains to be done.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-832T].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact John P. Hutton at (202)
512-4841 or huttonj@gao.gov.
[End of section]
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss challenges the Department of
Defense (DOD) faces in acquiring services to support its operations.
Although many of these challenges are long-standing, they have become
more apparent in recent years as the department's reliance on
contractors has grown in size and scope. In fiscal year 2006, DOD
obligated more than $151 billion on service contracts, a 78 percent
real increase since fiscal year 1996. As you know, however, DOD does
not always use sound contracting practices when acquiring these
services, and the department is operating with a deficit of people with
the right skills to support its acquisitions. Consequently, DOD may not
have always obtained good value when buying billions of dollars of
services at a time when serious budget pressures face the nation.
The challenges faced by DOD in acquiring services are not new, but
rather are emblematic of a range of systemic and long-standing issues.
In this regard, we identified DOD contract management to be high risk
because of its vulnerability to fraud, waste, abuse, and mismanagement
15 years ago[Footnote 1] and have reported on DOD's long-standing
problems with management and oversight of support contractors since
1997. In January 2005, we added the management of interagency
contracting to our high-risk list. DOD is the largest user of
interagency contracts. In a report issued in July 2006, we concluded
that with awards to contractors large and growing, DOD will continue to
be vulnerable to contracting fraud, waste, or misuse of taxpayer
dollars, and abuse.[Footnote 2] While DOD has acknowledged its
vulnerabilities and taken some actions to address them, many of the
initiatives are still in their early stages, and it is too soon to tell
what impact they may have.
Today, I would like to discuss DOD's (1) increasing reliance on
contractors, (2) efforts to follow sound business practices when
acquiring services, and (3) actions to improve its management and
oversight of services. My statement is based on work that GAO has
completed over the past decade, which was conducted in accordance with
generally accepted government auditing standards. Additionally, my
statement draws on recent reports issued by the DOD Inspector General
and the General Services Administration (GSA) Inspector General.
Summary:
Numerous persistent problems have resulted in reduced effectiveness and
have exposed DOD to unnecessary risks when acquiring services. The
growth in obligations on service contracts--from $85.1 billion in
fiscal year 1996 to more than $151 billion in fiscal year 2006--
reflects a growing reliance on contractors to provide a range of
mission-critical services. At the same time, DOD's civilian workforce
was downsized without sufficient attention to requisite skills and
competencies.
Within this environment, our work, as well as that of some agency
Inspectors General, have identified numerous instances of weak business
practices--poorly defined requirements, inadequate competition,
insufficient guidance and leadership, inadequate monitoring of
contractor performance, and inappropriate uses of other agencies'
contracts and contracting services. Collectively, these problems expose
DOD to unnecessary risk, complicate efforts to hold DOD and contractors
accountable for poor acquisition outcomes, and increase the potential
for fraud, waste, or abuse of taxpayer dollars.
DOD's structure and processes for managing services do not position the
department to make service acquisitions a managed outcome. DOD has
taken some actions to improve its management of services, including
developing a competency model for its contracting workforce; issuing
policies and guidance to improve DOD's management of contractors
supporting deployed forces and its use of interagency contracts; and
developing an integrated assessment of how best to acquire services.
DOD leadership will be critical for translating this assessment and
other actions into effective frontline practices. At this point,
however, DOD does not know how well its services acquisition processes
are working and whether it is obtaining the services it needs while
protecting DOD's and the taxpayer's interests.
DOD Increasingly Relies on Contractor-Provided Services:
Over the past decade, DOD has increasingly relied on contractors to
provide a range of mission-critical services from operating information
technology systems to providing logistical support on the battlefield.
The growth in spending on services clearly illustrates this point.
DOD's obligations on service contracts, expressed in constant fiscal
year 2006 dollars, rose from $85.1 billion in fiscal year 1996 to more
than $151 billion in fiscal year 2006, a 78 percent increase. More than
$32 billion--or 21 percent--of DOD's obligations on services in fiscal
year 2006 were for professional, administrative, and management support
contracts. Overall, according to DOD, the amount obligated on service
contracts exceeded the amount the department spent on supplies and
equipment, including major weapon systems.
Several factors have contributed to the growth in service contracts.
For example, after the September 2001 terrorist attacks, increased
security requirements and the deployment of active duty and reserve
personnel resulted in DOD having fewer military personnel to protect
domestic installations. For example, the U.S. Army awarded contracts
worth nearly $733 million to acquire contract guards at 57
installations. Growth was also caused by changes in the way DOD
acquired certain capabilities. For example, DOD historically bought
space launch vehicles, such as the Delta and Titan rockets as products.
Now, under the Evolved Expendable Launch Vehicle program, the Air Force
purchases launch services using contractor-owned launch vehicles.
Similarly, the Air Force and Army turned to service contracts for
simulator training primarily because efforts to modernize existing
simulator hardware and software had lost out in the competition for
procurement funds. Buying training as a service meant that operation
and maintenance funds could be used instead of procurement
funds.[Footnote 3] Overall, however, our work found that to a large
degree, this growth simply happened and was not a managed outcome.
As the amount and complexity of contracting for services have
increased, the size of the civilian workforce has decreased. More
significantly, DOD carried out this downsizing without ensuring that it
had the requisite skills and competencies needed to manage and oversee
service acquisitions. Consequently, DOD is challenged in its ability to
maintain a workforce with the requisite knowledge of market conditions,
industry trends, and the technical details about the services they
procure; the ability to prepare clear statements of work; and the
capacity to manage and oversee contractors.
Participants in an October 2005 GAO forum on Managing the Supplier Base
for the 21st Century commented that the current federal acquisition
workforce significantly lacks the new business skills needed to act as
contract managers. In June 2006, DOD issued a human capital strategy
that acknowledged that DOD's civilian workforce is not balanced by age
or experience. DOD's strategy identified a number of steps planned over
the next 2 years to more fully develop a long-term approach to managing
its acquisition workforce. For example, DOD's Director of Defense
Procurement and Acquisition Policy testified in January 2007 that DOD
has been developing a model that will address the skills and
competencies necessary for DOD's contracting workforce. That model will
be deployed this year. The Director stated that this effort would allow
DOD to assess the workforce in terms of size, capability, and skill
mix, and to develop a comprehensive recruiting, training, and
deployment plan to meet the identified capability gaps.
A report we issued in November 2006 on DOD space acquisition provides
an example of downsizing in a critical area--cost estimating.[Footnote
4] In this case, there was a belief within the government that cost
savings could be achieved under acquisition reform initiatives by
reducing technical staff, including cost estimators, since the
government would be relying more on commercial-based solutions to
achieve desired capabilities. According to one Air Force cost-
estimating official we spoke with, this led to a decline in the number
of Air Force cost estimators from 680 to 280. According to this
official, many military and civilian cost-estimating personnel left the
cost-estimating field, and the Air Force lost some of its best and
brightest cost estimators. In turn, because of the decline in in-house
resources, space program offices and Air Force cost-estimating
organizations are now more dependent on support from contractors. For
example, at 11 space program offices, contractors accounted for 64
percent of cost-estimating personnel. The contractor personnel now
generally prepare cost estimates while government personnel provide
oversight, guidance, and review of the cost-estimating work. Reliance
on support contractors raises questions from the cost-estimating
community about whether numbers and qualifications of government
personnel are sufficient to provide oversight of and insight into
contractor cost estimates.
Turning to Iraq, DOD has relied extensively on contractors to undertake
major reconstruction projects and provide support to troops in Iraq.
DOD is responsible for a significant portion of the more than $30
billion in appropriated reconstruction funds and has awarded and
managed many of the large reconstruction contracts, such as the
contracts to rebuild Iraq's oil, water, and electrical infrastructure,
as well as to train and equip Iraqi security forces. Further, U.S.
military operations in Iraq have used contractors to a far greater
extent than in prior operations to provide interpreters and
intelligence analysts, as well as more traditional services such as
weapons systems maintenance and base operations support. These services
are often provided under cost-reimbursement-type contracts, which allow
the contractor to be reimbursed for reasonable, allowable, and
allocable costs to the extent prescribed in the contracts. Further,
these contracts often contain award fee provisions, which are intended
to incentivize more efficient and effective contractor
performance.[Footnote 5] If contracts are not effectively managed and
given sufficient oversight, the government's risk is likely to
increase. For example, we have reported that DOD needs to conduct
periodic reviews of services provided under cost-reimbursement
contracts to ensure that services are being provided and at an
appropriate level and quality. Without such a review, the government is
at risk to pay for services it no longer needs.
DOD Does Not Consistently Use Sound Business Practices to Acquire
Services:
Our work, along with that of the Inspectors General, has repeatedly
found problems with the practices DOD uses to acquire services. Too
often, the department obtains services based on poorly defined
requirements and inadequate competition. Further, DOD's management and
use of contractors supporting deployed forces suffers from the lack of
clear and comprehensive guidance, among other shortfalls. Similarly,
DOD does not always oversee and manage contractor performance, in part
due to capacity issues, once a contract is in place. Many of these
problems show up in the department's use of other agencies' contracts.
Collectively, these problems expose DOD to unnecessary risk, complicate
efforts to hold DOD and contractors accountable for poor acquisition
outcomes, and increase the potential for fraud, waste, or abuse of
taxpayer dollars.
Poorly Defined Requirements:
Poorly defined or broadly described requirements have contributed to
undesired service acquisition outcomes. To produce desired outcomes
within available funding and required time frames, DOD and its
contractors need to clearly understand acquisition objectives and how
they translate into the contract's terms and conditions. The absence of
well-defined requirements and clearly understood objectives complicates
efforts to hold DOD and contractors accountable for poor acquisition
outcomes. Contracts, especially service contracts, often do not have
definitive or realistic requirements at the outset needed to control
costs and facilitate accountability. This situation is illustrated in
the following examples:
* In June 2004, we found that during Iraqi reconstruction efforts, when
requirements were not clear, DOD often entered into contract
arrangements that introduced risks. We reported that DOD often
authorized contractors to begin work before key terms and conditions,
such as the work to be performed and its projected costs, were fully
defined. In September 2006, we reported that, under this approach, DOD
contracting officials were less likely to remove costs questioned by
auditors if the contractor had incurred these costs before reaching
agreement on the work's scope and price.[Footnote 6] In one case, the
Defense Contract Audit Agency questioned $84 million in an audit of a
task order for an oil mission. In that case, the contractor did not
submit a proposal until a year after the work was authorized, and DOD
and the contractor did not negotiate the final terms of the contract
until more than a year after the contractor had completed the work. We
will issue a report later this year on DOD's use of undefinitized
contract actions.
* In July 2004, we noted that personnel using the Army's Logistics
Civil Augmentation Program (LOGCAP) contract in Iraq, including those
who may be called upon to write statements of work and prepare
independent government cost estimates, had not always received the
training needed to accomplish their missions.[Footnote 7] We noted, for
example, the statement of work required the contractor to provide water
for units within 100 kilometers of designated points but did not
indicate how much water needed to be delivered to each unit or how many
units needed water. Without such information, the contractor may not be
able to determine how to meet the needs of the Army and may take
unnecessary steps to do so. Further, we have reported that contract
customers need to conduct periodic reviews of services provided under
cost-reimbursable contracts to ensure that services provided are
supplied at an appropriate level. Without such a review, the government
is at risk of paying for services it no longer needs. For example, the
command in Iraq lowered the cost of the LOGCAP contract by $108 million
by reducing services and eliminating unneeded dining facilities and
laundries.
Inadequate Competition:
Competition is a fundamental principle underlying the federal
acquisition process. Nevertheless, we have reported on the lack of
competition in DOD's acquisition of services since 1998. We have
reported that DOD has, at times, sacrificed the benefits of competition
for expediency. For example, we noted in April 2006 that DOD awarded
contracts for security guard services supporting 57 domestic bases, 46
of which were done on an authorized, sole-source basis.[Footnote 8] The
sole-source contracts were awarded by DOD despite recognizing it was
paying about 25 percent more than previously paid for contracts awarded
competitively. In this case, we recommended that the Army reassess its
acquisition strategy for contract security guards, using competitive
procedures for future contracts and task orders. DOD agreed and is in
the process of revising its acquisition strategy.
In Iraq, the need to award contracts and begin reconstruction efforts
quickly contributed to DOD's using other than full and open competition
during the initial stages of reconstruction. While full and open
competition can be a tool to mitigate acquisition risks, DOD
procurement officials had only a relatively short time--often only
weeks--to award the first major reconstruction contracts. As a result,
these contracts were generally awarded using other than full and open
competition. We recently reported that DOD competed the vast majority
of its contract obligations between October 1, 2003, through March 31,
2006.[Footnote 9] We were able to obtain data on $7 billion, or 82
percent, of DOD's total contract obligations during this period. Our
ability to obtain complete information, however, on DOD reconstruction
contract actions was limited because not all DOD components
consistently tracked or fully reported this information.
Insufficient Guidance and Leadership to Manage Contractors Supporting
Deployed Forces:
Since the mid-1990s, our reports have highlighted the need for clear
and comprehensive guidance for managing and overseeing the use of
contractors that support deployed forces. As we reported in December
2006, DOD has not yet fully addressed this long-standing
problem.[Footnote 10]
Such problems are not new. In assessing LOGCAP implementation during
the Bosnian peacekeeping mission in 1997, we identified weaknesses in
the available doctrine on how to manage contractor resources, including
how to integrate contractors with military units and what type of
management and oversight structure to establish.[Footnote 11] We
identified similar weaknesses when we began reviewing DOD's use of
contractors in Iraq. For example, in 2003 we reported that guidance and
other oversight mechanisms varied widely at the DOD, combatant command,
and service levels, making it difficult to manage contractors
effectively. Similarly, in our 2005 report on private security
contractors in Iraq, we noted that DOD had not issued any guidance to
units deploying to Iraq on how to work with or coordinate efforts with
private security contractors.[Footnote 12] Further, we noted that the
military may not have a clear understanding of the role of contractors,
including private security providers, in Iraq and of the implications
of having private security providers in the battle space.
In our view, establishing baseline policies for managing and overseeing
contractors would help ensure the efficient use of contractors in
places such as Iraq. DOD addressed some of these issues when it issued
new guidance in October 2005 on the use of contractors who support
deployed forces.[Footnote 13] However, as our December 2006 report made
clear, DOD's guidance does not address a number of problems we have
repeatedly raised--such as the need to provide adequate contract
oversight personnel, to collect and share lessons learned on the use of
contractors supporting deployed forces, and to provide DOD commanders
and contract oversight personnel with training on the use of
contractors overseas before deployment. Since our December 2006 report
was issued, DOD officials indicated that DOD was developing a joint
publication entitled Contracting and Contractor Management in Joint
Operations, which is expected to be distributed in May 2007.
Our work has also highlighted the need for DOD components to comply
with departmental guidance on the use of contractors. For example, in
our June 2003 report we noted that DOD components were not complying
with a long-standing requirement to identify essential services
provided by contractors and develop backup plans to ensure the
continuation of those services during contingency operations should
contractors become unavailable to provide those services. Other reports
highlighted our concerns over DOD's planning for the use of contractor
support in Iraq, including the need to comply with guidance to identify
operational requirements early in the planning process. When
contractors are involved in planning efforts early and given adequate
time to plan and prepare to accomplish their assigned tasks, the
quality of the contractor's services improves and contract costs may be
lowered.
DOD's October 2005 guidance on the use of contractor support to
deployed forces went a long way to consolidate existing policy and
provide guidance on a wide range of contractor issues. However, as of
December 2006, we found little evidence that DOD components were
implementing that guidance, in part because no individual within DOD
was responsible for reviewing DOD's and the services' efforts to ensure
the guidance was being consistently implemented. In our 2005 report on
LOGCAP we recommended DOD designate a LOGCAP coordinator with the
authority to participate in deliberations and advocate the most
effective and efficient use of the LOGCAP contract. Similarly, in 2006
we recommended that DOD appoint a focal point within the Office of the
Under Secretary of Defense for Acquisition, Technology, and Logistics-
-at a sufficiently senior level and with the appropriate resources--
dedicated to leading DOD's efforts to improve its contract management
and oversight. DOD agreed with these recommendations. In October 2006,
DOD established the office of the Assistant Deputy Under Secretary of
Defense for Program Support to serve as the office of primary
responsibility for contractor support issues, but the office's specific
roles and responsibilities have not yet been clearly defined.
Inadequate Management and Assessment of Contractor Performance:
GAO has reported on numerous occasions that DOD did not adequately
manage and assess contractor performance to ensure that the business
arrangement was properly executed. Managing and assessing post-award
performance entails various activities to ensure that the delivery of
services meets the terms of the contract and requires adequate
surveillance resources, proper incentives, and a capable workforce for
overseeing contracting activities. If surveillance is not conducted,
not sufficient, or not well documented, DOD is at risk of being unable
to identify and correct poor contractor performance in a timely manner
and potentially paying too much for the services it receives.
Our work has found, however, that DOD is often at risk. In March 2005,
for example, we reported instances of inadequate surveillance on 26 of
90 DOD service contracts we reviewed.[Footnote 14] In each instance, at
least one of the key factors to ensure adequate surveillance did not
take place. These factors are (1) training personnel in how to conduct
surveillance, (2) assigning personnel at or prior to contract award,
(3) holding personnel accountable for their surveillance duties, and
(4) performing and documenting surveillance throughout the period of
the contract. Officials we met with during our review expressed
concerns about support for surveillance. The comments included those of
Navy officials who told us that surveillance remains a part-time duty
they did not have enough time to undertake and, consequently, was a low-
priority task.
More recently, in December 2006 we reported that DOD does not have
sufficient numbers of contractor oversight personnel at deployed
locations, which limits its ability to obtain reasonable assurance that
contractors are meeting contract requirements efficiently and
effectively.[Footnote 15] For example, an Army official acknowledged
that the Army is struggling to find the capacity and expertise to
provide the contracting support needed in Iraq. A LOGCAP program
official noted that if adequate staffing had been in place, the Army
could have realized substantial savings on the LOGCAP contract through
more effective reviews of new requirements. A Defense Contract
Management Agency official responsible for overseeing the LOGCAP
contractor's performance at 27 locations noted that he was unable to
visit all of those locations during his 6-month tour to determine the
extent to which the contractor was meeting contract requirements.
The lack of visibility on the extent of services provided by
contractors to deployed forces contributes to this condition. Without
such visibility, senior leaders and military commanders cannot develop
a complete picture of the extent to which they rely on contractors to
support their operations. We first reported the need for better
visibility in 2002 during a review of the costs associated with U.S.
operations in the Balkans.[Footnote 16] At that time, we reported that
DOD was unaware of (1) the number of contractors operating in the
Balkans, (2) the tasks those contractors were contracted to do, and (3)
the government's obligations to those contractors under the contracts.
We noted a similar situation in 2003 in our report on DOD's use of
contractors to support deployed forces in Southwest Asia and
Kosovo.[Footnote 17] Our December 2006 review of DOD's use of
contractors in Iraq found continuing problems with visibility over
contractors. For example, when senior military leaders began to develop
a base consolidation plan, officials were unable to determine how many
contractors were deployed and therefore ran the risk of over-or under-
building the capacity of the consolidated bases.
DOD's October 2005 guidance on contractor support to deployed forces
included a requirement that the department develop or designate a joint
database to maintain by-name accountability of contractors deploying
with the force and a summary of the services or capabilities
contractors provide. The Army has taken the lead in this effort, and
recently DOD designated a database intended to provide improved
visibility over contractors deployed to support the military in Iraq,
Afghanistan, and elsewhere. According to DOD, in January 2007, the
department designated the Army's Synchronized Predeployment &
Operational Tracker (SPOT) as the departmentwide database to maintain
by-name accountability of all contractors deploying with the force.
According to DOD, the SPOT database includes approximately 50,000
contractor names. Additionally, in December 2006, the Defense Federal
Acquisition Regulation Supplement was amended to require the use of the
SPOT database by contractors supporting deployed forces.
Inappropriate Use of Interagency Contracts:
In January 2005, we identified management of interagency contracts as a
high-risk area because of their rapid growth, limited expertise of
users and administrators, and unclear lines of accountability. Since
DOD is the largest user of interagency contracts in the government, it
can ill-afford to expose itself to such risks. Relying on other
agencies for contracting support requires sound practices. For example,
under an interagency arrangement, the number of parties in the
contracting process increases, and ensuring the proper use of these
contracting arrangements must be viewed as a shared responsibility that
requires agencies to define clearly who does what in the contracting
process. However, the problems I discussed previously regarding
defining requirements, ensuring competition, and monitoring contractor
performance are frequently evident in interagency contracting.
Additionally, DOD pays a fee to other agencies when using their
contracts or contracting services, which could potentially increase DOD
costs.
Our work, as well as that of the Inspectors General, found competition-
related issues on DOD's use of interagency contracting vehicles. DOD is
required to foster competition and provide all contractors a fair
opportunity to be considered for each order placed on GSA's multiple-
award schedules, unless certain exceptions apply.[Footnote 18] DOD
officials, however, have on numerous occasions avoided the time and
effort necessary to award individual orders competitively and instead
awarded all the work to be performed to a single contractor. We found
that this practice resulted in the noncompetitive award of many orders
that have not always been adequately justified.
In April 2005, we reported that a lack of effective management
controls--in particular insufficient management oversight and a lack of
adequate training--led to breakdowns in the issuance and administration
of task orders for interrogation and other services in Iraq by the
Department of the Interior on behalf of DOD.[Footnote 19] These
breakdowns included:
* issuing 10 out of 11 task orders that were beyond the scope of
underlying contracts, in violation of competition rules;
* not complying with additional DOD competition requirements when
issuing task orders for services on existing contracts;
* not properly justifying the decision to use interagency contracting;
* not complying with ordering procedures meant to ensure best value for
the government; and:
* not adequately monitoring contractor performance.
Because officials at Interior and the Army responsible for the orders
did not fully carry out their responsibilities, the contractor was
allowed to play a role in the procurement process normally performed by
government officials. Further, the Army officials responsible for
overseeing the contractor, for the most part, lacked knowledge of
contracting issues and were not aware of their basic duties and
responsibilities.
In July 2005, we reported on various issues associated with DOD's use
of franchise funds at the departments of the Interior and the Treasury-
-GovWorks and FedSource--that acquired a range of services for
DOD.[Footnote 20] For example, GovWorks did not receive competing
proposals for work and added substantial work to the orders without
determining that prices were fair and reasonable. FedSource generally
did not ensure competition for work, did not conduct price analyses,
and sometimes paid contractors higher prices for services than were
specified in the contracts, with no justification in the contract
files. At both funds, we found that the files we reviewed lacked clear
descriptions of requirements the contractor was supposed to meet. For
its part, DOD did not analyze contracting alternatives and lacked
information about purchases made through these arrangements. We also
found DOD and franchise fund officials were not monitoring contracts
and lacked criteria against which contractor performance could be
measured to ensure that contractors provided quality services in a
timely manner.
We identified several causes for the lack of sound practices. In some
cases, there was a lack of clear guidance and contracting personnel
were insufficiently trained on the use of interagency contracting
arrangements. In many cases, DOD users chose the speed and convenience
of an interagency contracting arrangement to respond and meet needs
quickly. Contracting service providers, under a fee-for-service
arrangement, sometimes inappropriately emphasized customer satisfaction
and revenue generation over compliance with sound contracting policies
and procedures. These practices put DOD at risk of not getting required
services at reasonable prices and unnecessarily wasting resources.
Further, DOD does not have useful information about purchases made
through other agencies' contracts, making it difficult to assess the
costs and benefits and make informed choices about the alternatives
methods available.
Similarly, the DOD Inspector General recently reported on issues with
DOD's use of contracts awarded by the departments of the Interior and
the Treasury, GSA, and the National Aeronautics and Space
Administration (NASA). For example, in November 2006, the Inspector
General reported that DOD contracting and program personnel did not
comply with acquisition rules and regulations when using contracts
awarded by NASA, such as not always complying with fair opportunity
requirements or not adequately justifying the use of a non-DOD
contracting vehicle. As a result, the Inspector General concluded that
funds were not used as intended by Congress, competition was limited,
and DOD had no assurance that it received the best value.[Footnote 21]
Additionally, the Inspector General found that DOD used Interior and
GSA to "park" funds that were expiring. The agencies then subsequently
placed contracts for DOD using the expired funds, thereby circumventing
appropriations law. The Inspector General concluded that these problems
were driven by a desire to hire a particular contractor, the desire to
obligate expiring funds, and the inability of the DOD contracting
workforce to respond to its customers in a timely manner.
DOD and other agencies have taken steps to address some of these
issues, including issuing an October 2006 memorandum intended to
strengthen internal controls over the use of interagency contracts and
signing a December 2006 memorandum of understanding with GSA to work
together on 22 basic contracting management controls, including
ensuring that sole-source justifications are adequate, that statements
of work are complete, and that interagency agreements describe the work
to be performed. Similarly, GSA has worked with DOD to identify unused
and expired DOD funds maintained in GSA accounts. Further, according to
the Inspector General, Interior has withdrawn numerous warrants in
response to these findings.
DOD Needs a Management Structure to Oversee Service Acquisition
Processes and Outcomes:
Congress and GAO have identified the need to improve DOD's overall
approach to acquiring services for several years. In 2002, we noted
that DOD's approach to buying services was largely fragmented and
uncoordinated. Responsibility for acquiring services was spread among
individual military commands, weapon system program offices, or
functional units on military bases, and with little visibility or
control at the DOD or military department level. Despite taking action
to address the deficiencies and implement legislative requirements,
DOD's actions to date have not equated with progress. DOD's current
approach to acquiring services suffers from the absence of key elements
at the strategic and transactional levels and does not position the
department to make service acquisitions a managed outcome.
Considerable congressional effort has been made to improve DOD's
approach to acquiring services. For example, in 2001, Congress passed
legislation to ensure that DOD acquires services by means that are in
the best interest of the government and managed in compliance with
applicable statutory requirements. In this regard, sections 801 and 802
of the National Defense Authorization Act for Fiscal Year 2002 required
DOD to establish a service acquisition management approach, including
developing a structure for reviewing individual service transactions
based on dollar thresholds and other criteria.[Footnote 22] Last year,
Congress amended requirements pertaining to DOD's service contracting
management structure, workforce, and oversight processes, among
others.[Footnote 23]
We have issued several reports that identified shortcomings in DOD's
approaches and its implementation of legislative requirements. For
example, we issued a report in January 2002 that identified how leading
commercial companies took a strategic approach to buying services and
recommended that DOD evaluate how a strategic reengineering approach,
such as that employed by leading companies, could be used as a
framework to guide DOD's reengineering efforts.[Footnote 24] In
September 2003, we reported that DOD's actions to implement the service
acquisition management structure required under Sections 801 and 802
did not provide a departmentwide assessment of how spending for
services could be more effective and recommended that DOD give greater
attention to promoting a strategic orientation by setting performance
goals for improvements and ensuring accountability for achieving those
results.[Footnote 25]
Most recently, in November 2006, we issued a report that identified a
number of actions that DOD could take to improve its acquisition of
services.[Footnote 26] We noted that DOD's overall approach to managing
services acquisitions suffered from the absence of several key elements
at both a strategic and transactional level. The strategic level is
where the enterprise, DOD in this case, sets the direction or vision
for what it needs, captures the knowledge to enable more informed
management decisions, ensures departmentwide goals and objectives are
achieved, determines how to go about meeting those needs, and assesses
the resources it has to achieve desired outcomes. The strategic level
also sets the context for the transactional level, where the focus is
on making sound decisions on individual service acquisitions. Factors
for good outcomes at the transactional level include valid and well-
defined requirements, appropriate business arrangements, and adequate
management of contractor performance.
DOD's current approach to managing the acquisition of services tended
to be reactive and did not fully addressed the key factors for success
at either the strategic or the transactional level. At the strategic
level, DOD had not developed a normative position for gauging whether
ongoing and planned efforts can best achieve intended results. Further,
DOD lacked good information on the volume and composition of services,
perpetuating the circumstance in which the acquisition of services
tended to happen to DOD, rather than being proactively managed. For
example, despite implementing a review structure aimed at increasing
insight into service transactions, DOD was not able to determine which
or how many transactions had been reviewed.[Footnote 27] The military
departments had only slightly better visibility, having reviewed
proposed acquisitions accounting for less than 3 percent of dollars
obligated for services in fiscal year 2005. Additionally, most of the
service acquisitions the military services review involved indefinite
delivery/indefinite quantity contracts. DOD's policy for managing
service acquisitions had no requirement, however, to review individual
task orders that were subsequently issued even if the value of the task
order exceeded the review threshold.
Further, the reviews tended to focus more on ensuring compliance with
applicable statutes, regulations, and other requirements, rather than
on imparting a vision or tailored method for strategically managing
service acquisitions. Our discussions with officials at buying
activities that had proposed service acquisitions reviewed under this
process revealed that, for the most part, officials did not believe the
review significantly improved those acquisitions. These officials
indicated that the timing of the review process--which generally
occurred well into the planning cycle--was too late to provide
opportunities to influence the acquisition strategy. These officials
told us that the reviews would be more beneficial if they were
conducted earlier in the process, in conjunction with the program
office or customer, and in the context of a more strategic approach to
meeting the requirement, rather than simply from a secondary or
tertiary review of the contract.
At the transactional level, DOD tended to focus primarily on those
elements associated with awarding contracts, with much less attention
paid to formulation of service acquisition requirements and to
assessment of the actual delivery of contracted services. Moreover, the
results of individual acquisitions were generally not used to inform or
adjust strategic direction. As a result, DOD was not in a position to
determine whether investments in services are achieving their desired
outcomes. Further, DOD and military department officials identified
many of the same problems in defining requirements, establishing sound
business arrangements, and providing effective oversight that I
discussed previously, as the following examples show:
* DOD and military department officials consistently identified poor
communication and the lack of timely interaction between acquisition
and contracting personnel as key challenges to developing good
requirements.
* An Army contracting officer issued a task order for a product that
the contracting officer knew was outside the scope of the service
contract. The contracting officer noted in an e-mail to the requestor
that this deviation was allowed only because the customer needed the
product quickly and cautioned that no such allowances would be granted
in the future.
* Few of the commands or activities could provide us reliable or
current information on the number of service acquisitions they managed,
and others had not developed a means to consistently monitor or assess,
at a command level, whether such acquisitions were meeting the
performance objectives established in the contracts.
To address these issues, we made several recommendations to the
Secretary of Defense. DOD concurred with our recommendations and
identified actions it has taken, or plans to take, to address them. In
particular, DOD noted that it is reassessing its strategic approach to
acquiring services, including examining the types and kinds of services
it acquires and developing an integrated assessment of how best to
acquire such services. DOD expects this assessment will result in a
comprehensive, departmentwide architecture for acquiring services that
will, among other improvements, help refine the process to develop
requirements, ensure that individual transactions are consistent with
DOD's strategic goals and initiatives, and provide a capability to
assess whether service acquisitions are meeting their cost, schedule,
and performance objectives.
In closing, I would like to emphasize that DOD has taken, or is in the
process of taking, action to address the issues we identified. These
actions, much like the assessment I just mentioned, however, will have
little meaning unless DOD's leadership can translate its vision into
changes in frontline practices. In our July 2006 report on
vulnerabilities to fraud, waste, and abuse, we noted that leadership
positions are sometimes vacant, that the culture to streamline
acquisitions for purposes of speed may have not been balanced with good
business practices, and that even in newly formed government-industry
partnerships, the government needs to maintain its oversight
responsibility. Understanding the myriad causes of the challenges
confronting DOD in acquiring services is essential to developing
effective solutions and translating policies into practices. While DOD
has generally agreed with our recommendations intended to improve
contract management, much remains to be done. At this point, DOD does
not know how well its services acquisition processes are working, which
part of its mission can best be met through buying services, and
whether it is obtaining the services it needs while protecting DOD's
and the taxpayer's interests.
Mr. Chairman and members of the subcommittee, this concludes my
testimony. I would be happy to answer any questions you might have.
In preparing this testimony, we relied principally on previously issued
GAO and Inspectors General reports. We conducted our work in May 2007
in accordance with generally accepted government auditing standards.
Contact and Staff Acknowledgments:
For further information regarding this testimony, please contact John
P. Hutton at (202) 512-4841 or huttonj@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs can be found on
the last page of this testimony. Key contributors to this testimony
were Theresa Chen, Timothy DiNapoli, Kathryn Edelman, and John Krump.
FOOTNOTES
[1] GAO, High-Risk Series: An Update, GAO-07-310 (Washington, D.C.:
January 2007).
[2] GAO, Contract Management: DOD Vulnerabilities to Contracting Fraud,
Waste, and Abuse, GAO-06-838R (Washington, D.C.: July 7, 2006).
[3] Various funds can be used to acquire services, depending on the
nature of the service.
[4] GAO, Space Acquisitions: DOD Needs to Take More Action to Address
Unrealistic Initial Cost Estimates of Space Systems, GAO-07-96
(Washington, D.C.: Nov. 17, 2006).
[5] In December 2005, we reported that DOD programs engage in award fee
practices that undermine efforts to motivate contractor performance and
that do not hold contractors accountable for achieving desired
acquisition outcomes. See GAO, Defense Acquisitions: DOD Has Paid
Billions in Award and Incentive Fees Regardless of Acquisition
Outcomes, GAO-06-66 (Washington, D.C.: Dec. 19, 2005).
[6] GAO, Rebuilding Iraq: Continued Progress Requires Overcoming
Contract Management Challenges, GAO-06-1130T (Washington, D.C.: Sept.
28, 2006); and GAO, Iraq Contract Costs: DOD Consideration of Defense
Contract Audit Agency's Findings, GAO-06-1132 (Washington, D.C.: Sept.
25, 2006).
[7] GAO, Military Operations: DOD's Extensive Use of Logistics Support
Contracts Requires Strengthened Oversight, GAO-04-854 (Washington,
D.C.: July 19, 2004).
[8] GAO, Contract Security Guards: Army's Guard Program Requires
Greater Oversight and Reassessment of Acquisition Approach, GAO-06-284
(Washington, D.C.: Apr. 3, 2006).
[9] GAO, Rebuilding Iraq: Status of Competition for Iraq Reconstruction
Contracts, GAO-07-40 (Washington, D.C.: Oct. 6, 2006).
[10] GAO, Military Operations: High-Level DOD Action Needed to Address
Long-standing Problems with Management and Oversight of Contractors
Supporting Deployed Forces, GAO-07-145 (Washington, D.C.: Dec. 18,
2006).
[11] GAO, Contingency Operations: Opportunities to Improve the
Logistics Civil Augmentation Program, GAO/NSIAD-97-63 (Washington,
D.C.: Feb. 11, 1997).
[12] GAO, Rebuilding Iraq: Actions Needed to Improve Use of Private
Security Providers, GAO-05-737 (Washington, D.C.: July 28, 2005).
[13] Department of Defense Instruction 3020.41, Contractor Personnel
Authorized to Accompany the U.S. Armed Forces (Oct. 3, 2005).
[14] GAO, Contract Management: Opportunities to Improve Surveillance on
Department of Defense Service Contracts, GAO-05-274 (Washington, D.C.:
Mar. 17, 2005).
[15] GAO-07-145.
[16] GAO, Defense Budget: Need to Strengthen Guidance and Oversight of
Contingency Operations Costs, GAO-02-450 (Washington, D.C.: May 21,
2002).
[17] GAO, Military Operations: Contractors Provide Vital Services to
Deployed Forces but Are Not Adequately Addressed in DOD Plans, GAO-03-
695 (Washington, D.C. June 24, 2003).
[18] 10 U.S.C. 2304c.
[19] GAO, Interagency Contracting: Problems with DOD's and Interior's
Orders to Support Military Operations, GAO-05-201 (Washington, D.C.:
Apr. 29, 2005).
[20] GAO, Interagency Contracting: Franchise Funds Provide Convenience,
but Value to DOD Is Not Demonstrated, GAO-05-456 (Washington, D.C.:
July 29, 2005).
[21] Department of Defense, Office of the Inspector General.
Acquisition: FY 2005 DOD Purchases Made Through the National
Aeronautics and Space Administration. Report No. D-2007-023.
(Arlington, Va. Nov. 13, 2006).
[22] Pub. L. No. 107-107, §§ 801, 802 (2001)(section 801 added new
sections 2330 and 2330a to title 10, U.S. Code).
[23] Pub. L. No. 109-163, § 812 (2006)(section 812 amended 10 U.S.C. §
2330).
[24] GAO, Best Practices: Taking A Strategic Approach Could Improve
DOD's Acquisition of Services, GAO-02-230 (Washington, D.C.: Jan. 18,
2002).
[25] GAO, Contract Management: High-Level Attention Needed to Transform
DOD Services Acquisition, GAO-03-935 (Washington, D.C.: Sept. 10,
2003).
[26] GAO, Defense Acquisitions: Tailored Approach Needed to Improve
Service Acquisition Outcomes, GAO-07-20 (Washington, D.C.: Nov. 9,
2006).
[27] The management structure has three review levels: (1) review by
the Under Secretary of Defense (Acquisition, Technology, and Logistics)
for services acquisitions valued over $2 billion; (2) review by the
component or designated acquisition executive for service acquisitions
valued between $500 million and $2 billion; and (3) review by a
component-designated official for the acquisition of services valued at
less than $500 million. The Air Force, Army, and Navy each developed
review processes and authorities to support the DOD review requirements.
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